What is Historical Cost?
Historical cost is the accounting principle that records assets and liabilities at the actual cash amount paid or received at the time of the original transaction. The value is not adjusted for subsequent changes in market price, except for impairment or specific IFRS exceptions.
How It Works
- Capture the original transaction price plus directly attributable acquisition costs.
- Record the asset at this amount on the balance sheet.
- Depreciate or amortise it over its useful life.
- Test for impairment periodically; record a write-down if the recoverable amount falls below carrying value.
Saudi Context
Saudi entities follow IFRS as adopted in the Kingdom, where most assets are still measured at historical cost less depreciation. Investment property, biological assets, and certain financial instruments are exceptions and may use fair value. ZATCA accepts historical cost for zakat asset disclosures.
Example
A Riyadh company bought a building in 2015 for SAR 8 million plus SAR 200,000 in legal fees. It is recorded at SAR 8.2 million and depreciated over 25 years, even if the market value has since risen to SAR 12 million.